- We have looked at three common price multiples…that can be used to estimate the value of a business:…Price-to-Earnings ratio, P/E;…Price-to-Book ratio, P/B;…and Price-to-Sales ratio, P/S.…For some very young companies…these traditional financial statement numbers…don't reflect the true economic value of a company.…Let's look at this issue by examining one particular case,…the 22 billion dollar acquisition of WharsApp by Facebook…in 2014.…Now, note, the original purchase price…was reported to be 19 billion dollars,…but most of the payment was in the form of Facebook stock.…

And by the time the deal was finalized,…an increase in the value of Facebook stock…pushed the total acquisition price to 22 billion dollars,…and I'll use the 22 billion dollar number…in my calculations.…First, let's assume that Facebook knew what it was doing…in agreeing to pay 22 billion dollars for WhatsApp.…With that we will then see what kind of price multiples…are implicit in that number.…Well, after the acquisition WhatsApp released…

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1/4/2016

Do you know the value of your business? Business valuation is critical when selling a small business, bringing on a partner, seeking additional debt or equity financing, establishing the share valuation in an initial public offering (IPO), or buying another company. In this course, accounting professors Jim and Kay Stice provide an introduction to the most important business valuation methods. They proceed from the valuation of individual assets and liabilities to the valuation of entire businesses. The course includes practice with simple valuation models, such as the use of multiples and price-to-earnings ratios, as well as the more complicated "discounted cash flow" valuation model. The final chapters include a fun and practical examination of the value of one very real business—McDonald's—and some parting words of advice.

Make sure to check out the Stice brothers' other accounting and finance courses to understand the other economic factors that impact your business.

Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.